AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (5 comments)

  1. Robert puharic

    Weiser is mathematically incompetent. And here’s why. He claims that subsidized mortgages caused the financial collapse. Let’s look at the facts rather than right wing propaganda.

    Over the last 50 years, the percentage of households holding mortgages has been 65% +/-3%. A marginal variation. Yet according to Weiser, this tiny, insignificant noise figure causes the collapse of our economy.

    Where’s the money? There simply isn’t enough there to do the damage of 10 trillion in lost equity that happened in 2007. But the right loves this because it blames the middle class.

    What really happened? Well, in 1997, the credit default swap market was $320 billion. 10 years later in 2006 it was 62 TRILLION, a TWENTY THOUSAND percent increase.

    So Weiser claims a 3% variation in mortgages caused the problem. And a 20,000% greed increase by Wall Street didn’t.

    We deregulated Wall Street because conservatives promised they could regulate themselves. They were experts, said the right wing, because they’re rich.

    THAT is what blew up the economy. Wall Street greed, as Alan Greenspan said. NOT Main STreet, no matter how much the right hates the middle class.

    1. mesa econoguy

      Notional value of CDS outstanding has virtually nothing to do with the underlying fraud in lending standards which caused the meltdown.

      Fannie & Freddie’s balance sheets exploded in the runup to the meltdown, because they were facilitating and enabling the fraud.

      There was no financial deregulation – Sarbanes Oxley and multiple other regulations actually increased the amount of financial regulation over the runup period to the meltdown.

      The meltdown was caused by leftist government interference in the lending and mortgage markets, which resulted in all-time high homeownership rates, the goal of the programs.

      You are a moron.

    2. Terry Schuck

      Borrowed money, margin accounts, leverage, derivatives are terms regarding stuff that people really don’t have. When you are highly “leveraged”, and derivatives mean you could owe a 100 times more than the actual “read assets” you have, it takes a relative small amount to force the unwinding of your leverages assets.

      BTW, thanks for the ad hominem attack. It makes it much easier to know one is dealing with a liberal viewpoint.

  2. How do credit default swaps affect housing prices?

    Where do you get your data and analysis?

    The falling value of mortgage backed securities made banks insolvent. That has nothing to do with CDS’s, which failed to provide enough insurance to offset bank losses after the fact.

    1. Terry Schuck

      Financial markets and the folks who play in them are affected by many factors every second, some known some unknown. When financial instruments are highly leveraged, then other assets are needed to pay for the losses, and contractions occur in many places when those assets are taken and used to pay those losses.

      BTW, a good “insurance company” wouldn’t and couldn’t afford to insure the losses. They, too, would have been kaput.

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